Decentralisation and council business rates: More of the same from Whitehall?

Dr John Stanton, Senior Lecturer in Law at The City Law School, looks at concerns around giving councils the potential to earn greater amounts of revenue, as recently announced by George Osborne, Chancellor of the Exchequer.

George Osborne’s
announcement on the 6th October to the effect that councils will, from 2020, be able to
keep business rates raised in local areas appears, at first glance, to offer
two things. First, the potential for councils to derive greater funds from
local sources; and second, greater local authority control over the sustainability
and development of a local area. It has been welcomed in some quarters as
effecting a meaningful decentralisation of power. There are concerns, though,
and more work is perhaps needed to ensure that the objectives sought are
achieved appropriately. Historically, in the UK,
just 25% of councils’ funds have come from local revenue; the rest has come
from the centre. This reflects broader issues relating to centralised control,
not for discussion here, but when it is noted that other European states such
as Denmark or Sweden rely on as little as 15% of central money, the extent to
which UK local government has been controlled and restrained by Whitehall
becomes clear (see: M Ryan, ‘Central-local government relations and the UK
constitution’ (2009) 14(1) Coventry Law
Journal 20).

The opportunity now to keep all of the monies paid as part of
this business rate – potentially up to £26 billion across the country – means
that councils will, in theory, have greater income. As Osborne has said,
‘[u]nder the new plan "attract a business, and you attract more
money; regenerate a high street, and you'll reap the benefits; grow your area,
and you'll grow your revenue too”.

‘Survival of the fittest’

This leads us to our second point. At the heart of
local sustainability (see: Democratic Sustainability in a New Era of Localism) is a
commitment to the promotion of local economies. By ostensibly affording
councils the opportunity to reap the rewards of business performance in their
area, it means that there is potentially so much more that they can now do – and
an added incentive – to attract businesses, to develop local spaces and to look
after local communities. Indeed, and more broadly, the freedom that this
potentially gives councils means that they can exercise greater autonomy in
local areas and sever some of the unwanted and unnecessary ties with the
centre.

There are, inevitably, some concerns though.

The policy seems to promote the ‘survival of the
fittest’. Whereas in the past, monies taken from local business rates was paid
to the centre and redistributed across local councils countrywide, this new
policy could have the effect of isolating those areas with few businesses or
lacking thriving local economies. Meanwhile those communities with booming
businesses will reap financial reward as a consequence. Local freedom and
autonomy is to be welcomed, but greater care needs to be taken to protect
councils in poorer areas and with fewer businesses. There is a balance to be
struck: Councils have had the lion’s share of financial restriction in recent
years, what with the government’s measures aimed at tackling austerity; whilst
this new policy might promote local ownership and protection of businesses, it
does run the risk of telling councils to ‘sink or swim’.

Northern Powerhouse

Indeed, following on from this, there is also a sense that
the reduction in business rates is an ‘add on’ to the Northern Powerhouse
policy. Announced by George Osborne back in May, realisation of the Northern Powerhouse could
see councils coming together across England to form ‘combined authorities’, overseen
by a directly-elected mayor, and consequentially fashioned with an apparent
increase in authority. Aside from the fact that the cities currently forming
these “Powerhouses” (so far Manchester and Sheffield) are generally areas rife
with business activity; that councils adopting a directly-elected mayor will be
given the power to raise business
rates by 2% (councils not adopting the model will only be given the power to lower business rates) suggests that the
government is seeking to incentivise the adoption of the new model. More
decentralisation and local empowerment on centralised terms, perhaps?

The policy in one sense, then, is to be welcomed. Decentralisation
is a valuable enterprise and is crucial to the pursuit of localism in the UK.
Giving local councils the potential for greater revenue and encouraging (and
empowering) them to do more for local businesses and economies is, in one
manner, positive. The prevalence of the ‘one size fits all’ approach, however,
is still evident and suggestive of a need for more fundamental change if
objectives of decentralisation and local empowerment are to be both achievable
and sustainable. Such change will take time but will hopefully and ultimately
ensure that local authorities enjoy greater freedom, less centralised control,
and the power to lead and govern local areas appropriately.

Definition

Regeneration

Regeneration
refers to concerted social, economic and physical action to help people in
neighbourhoods experiencing multiple deprivation reverse decline and create
sustainable communities.

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